Swisscom AG (VTX:SCMN) will pay a dividend of CHF22.00 on the 5th of April. This payment means that the dividend yield will be 4.0%, which is around the industry average.
Swisscom's Payment Has Solid Earnings Coverage
While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Based on the last payment, Swisscom was quite comfortably earning enough to cover the dividend. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.
Over the next year, EPS is forecast to fall by 17.4%. Assuming the dividend continues along recent trends, we think the payout ratio could reach 75%, which is definitely on the higher side.
Swisscom Has A Solid Track Record
The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The last annual payment of CHF22.00 was flat on the first annual payment 10 years ago. Although we can't deny that the dividend has been remarkably stable in the past, the growth has been pretty muted.
Swisscom May Find It Hard To Grow The Dividend
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. However, Swisscom has only grown its earnings per share at 2.7% per annum over the past five years. Growth of 2.7% may indicate that the company has limited investment opportunity so it is returning its earnings to shareholders instead. While this isn't necessarily a negative, it definitely signals that dividend growth could be constrained in the future unless earnings start to pick up again.
Swisscom Looks Like A Great Dividend Stock
Overall, we think that this is a great income investment, and we think that maintaining the dividend this year may have been a conservative choice. The company is generating plenty of cash, and the earnings also quite easily cover the distributions. We should point out that the earnings are expected to fall over the next 12 months, which won't be a problem if this doesn't become a trend, but could cause some turbulence in the next year. Taking this all into consideration, this looks like it could be a good dividend opportunity.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, Swisscom has 2 warning signs (and 1 which is significant) we think you should know about. Is Swisscom not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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